We’ve reported numerous times on the second order impacts of the increasing tensions between the US and China.
Australia has found itself caught in the middle, and with an increasingly evident shift towards the US sphere of influence, China has not shied away from demonstrating it’s dissatisfaction with recent Australian policy developments.
We reported here on increasing tensions resulting in key agricultural exports being stymied as a result of Chinese government intervention, and the often-ignored rare earths story is beginning to gain increased notoriety, thanks mainly to the US President’s recently signed Executive Order.
The Trump administration has finally awakened to the frightening fact, that China controls 80% of America’s rare earth mineral supply — a disturbing reality that the Pentagon wants to end once and for all.
Rare earth elements are a group of 17 minerals critical to the defense industry’s manufacturing of missiles and munitions, hypersonic weapons and radiation-hardened electronics — as well as consumer electronics like cellphones.
One Australian miner, Lynas (LYC.ASX) has been a darling of the space for several years, with investor appetite spiking amongst increasing tension.
We reported on the Lynas story here in early August, as part of a steadily strenthening thesis on a coming Super-cycle. Price has subsequently been range-bound between the $2.30 – $2.60 band. Shrewd investors and traders have seen gains of more than 150% since the March lows of $1.00.
With China controlling a significant amount of world-supply of rare-earths, combined with the fact that these highly-valued materials are key ingredients in weaponry and military hardware, the US has decided that enough is enough.
The Pentagon sent Congress a legislative proposal in May that would raise spending caps under the Defense Production Act to enable the government to spend up to US$1.75 billion on rare earth elements in munitions and missiles and US$350 million for microelectronics. It would also eliminate caps when it comes to hypersonic weapons.
This development bodes well for suitably aligned US alliance partners and their locally domiciled rare-earth mining partners.
Another Australian miner set to benefit from the recent Presidential directive is Ionic Rare Earths (IXR.ASX), previously Oro Verde.
IXR is an Australian based company, focusing on investments in the rare earth project, with its flagship project being the Makuutu Rare Earths project in Uganda. Priced at less than $0.02, it is a highly speculative play, although the over-arching geopolitical landscape is likely to support a broad base of the segment into the future.
It is interesting to note the primary US-based users of rare-earths, and consider their importance for the current US administration, which has seemed all-too-happy to increase support for the industrial-military complex.
Companies such as Raytheon Co RTN.N, Lockheed Martin Corp LMT.N and BAE Systems Plc BAES.L all make sophisticated missiles that use rare earths metals in their guidance systems, and sensors. Lockheed and BAE declined to comment. Raytheon did not respond to a request for comment.
Apple Inc AAPL.O uses rare earth elements in speakers, cameras and to make phones vibrate.
The United States imported $160 million of rare earth compounds and metals in 2018, up nearly 17% from 2017. Around 60% of it was used in catalysts for oil refining and in vehicle engines.
Foreign Policy wrote a interesting piece earlier in the year, outlining the persisting difficulties in ensuring the clear concerns of the administration were actively addressed.
It seems the newly announced Executive Order will have likely kicked things into gear, providing opportunities to miners, explorers and producers around the world, and particularly in Australia.
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